László ANDOR European Commissioner responsible for Employment, Social Affairs and Inclusion

Fostering inclusive growth: Germany's challenges in an EU context

European Commission in Germany / Berlin, 24 September 2012

Today I want to talk about the challenges facing Germany and more widely the European Union, in particular in my area of responsibility, which is employment, social affairs and inclusion.

Let me start by emphasising that the Commission very clearly acknowledges the good overall performance of Germany's labour market.

The employment rate is high and is rising steadily, so Germany seems on track to meeting its Europe 2020 employment rate target of 77%.

And what is true of the labour market as a whole is also true of sections of it.

The employment rate for women has increased by nearly 10 percentage points over the last decade and stood at 71.1% in 2011.

The employment rate for older workers has risen over the last decade by more than 20 percentage points and was close to 60% in 2011.

And the unemployment rate for young people is now the lowest in Europe. That is clearly due to good policies and especially the well-established dual vocational education system.

But despite its good performance, Germany cannot rest on its laurels.

First, not all participants in the labour market have benefited to the same extent from the positive developments in the past.

Women still face many obstacles in their labour market participation. Their employment rate in full-time equivalent is just above 50 %.

Disadvantaged young people often leave the education system without any qualification and face major problems in becoming integrated into the labour market.

Secondly, the economic outlook shows that the growth rate has slowed down. Following high rates in 2010 and 2011, growth is expected to be limited from 2012 on.

Thirdly, in the medium term Germany’s active labour force is projected to shrink from 45 million in 2010 to 41 million in 2020.

Population change will therefore be a major challenge in the coming years as the workforce shrinks and grows older.

The other main challenge for the German labour market in the long run will be the risk of a skilled-labour shortage, which is forecast to put the brakes on growth.

In this context, it is evident that in a medium term perspective harnessing the labour force’s full potential is vital.

This is reflected in the country-specific recommendations addressed to Germany by the EU in 2012.

The phasing-out of fiscal disincentives for second-earners and the increased availability of full-time child-care facilities and all-day schools could have a positive impact on the female labour participation (full-time)

Improving the educational achievements of disadvantaged groups would help to prevent skilled-labour shortages

Reducing the high tax wedge, in particular for low-wage earners, and maintaining appropriate activation and integration measures, in particular for the long-term unemployed, would support inclusive growth

Lastly, creating the conditions for wages to grow in line with productivity would help to readjust imbalances in the euro area.

Germany has stepped up its competitiveness by increasing wages more slowly than other euro-area countries.

The Commission’s Employment Package recognises that "wage developments should take account of the competitive position of the Member States".

According to the Commission's analysis, problems of labour-market segmentation and in-work poverty may arise when wages grow slower than productivity.

This is indicated by several factors:

In 2010 one fifth of all work contracts were 'mini-jobs'

As many as three out of four new jobs created in Germany in 2009 to 2010 were atypical and the growth of registered employment concentrated on agency work, which was up 23%

The in-work poverty rate for temporary workers is almost three times higher than for permanent workers

On average temporary workers earn little more than half the German median income — €1 419 instead of €2 702

Given those figures, many German citizens are faced with low-wage traps.

But the Commission welcomes certain developments:

a wage agreement for temporary workers has been made generally applicable

the social partners in the electrical and metallurgical sector have reached an agreement on additional payment depending on the length of stay of a temporary worker

it encourages similar sector agreements negotiated by social partners.

Wages also appear to be starting to rise again in line with productivity, in line with this year’s country-specific recommendations.

Skills and intra-EU mobility

Let me now turn to another crucial challenge the German labour market is facing.

The development of the employment situation in Germany and the European Union as a whole will depend closely on our success in fighting skill shortages.

As I said, a lack of highly qualified job-seekers is already a fact in several sectors in Germany.

Electrical engineers, physicians and elder-care nurses are just some examples of occupations where there are serious skill gaps.

Reducing the structural skills mismatch is a precondition for Europe to meet the Europe 2020 employment target of 75%.

This why we need, first of all, a true and dynamic European labour market: we need to overcome the current fragmentation.

Improving mobility will certainly lead to better distribution of skills throughout Europe and help to reduce the skill mismatch.

Let me highlight how the Commission supports worker mobility within the Union through various instruments.

One of the most powerful instrument we have is EURES, the network of European Employment Services, which the Commission is currently reforming. Our aim is to develop it into an effective Europe-wide platform for recruitment and placement.

Together with the Bundesagentur für Arbeit, EURES can offer tailor-made guidance to employers and jobseekers on issues of international and cross-border mobility.

While direct contact with jobseekers and employers continues to be essential, self-service facilities are growing in importance. Nowadays, most jobseekers start browsing the Internet to find new opportunities before they seek specific advice from an employment service agent.

The EURES job mobility portal, which is being revamped and modernised, currently contains more than 1.2 million job offers, including more than 400 000 vacancies in Germany.

In the past few years, information technology has made substantial progress. Modern IT allows us to analyse individual skill profiles of jobseekers and to compare them with the requirements of job vacancies.

The EURES job portal will enable employers to recruit the employees they need by making advanced job-matching on the basis of skills possible throughout the European Union.

"Targeted mobility schemes" can help to further stimulate mobility. These are small-scale programmes to address particular target groups, occupations, sectors or Member States with tailor-made recruitment campaigns.

The Commission is currently testing a "targeted mobility" concept for young people called "Your first EURES job".

In addition to being one of the most active members of the EURES network for intra-EU recruitment, the Bundesagentur für Arbeit is one of the four employment services selected for "Your first EURES job".

Itprovides EU support, including financial support, for young jobseekers willing to move to another Member State to work, and to SMEs willing to recruit them.

To fight the skills mismatch, we need a true European labour market, but we also need European tools to anticipate the future skills need.

With a view to creating jobs and ensuring a job-rich recovery, the European Commission’s Employment Package of April 2012 highlighted the job-creation potential of the green, health and information technology sectors in the coming years.

Estimates show that by 2020, 20 million jobs could eventually be created in the green economy across the EU in such sectors as energy efficiency, renewable energy, waste recycling, biodiversity and ecosystem services.

There could be 8 million openings linked to population ageing in the health sector by 2020. As for information technology, jobs for ICT specialists have increased by 3% a year, even during the crisis, and by 2015 Europe should have a shortage of 700 000 ICT practitioners.

At present, the EU lacks a comprehensive picture of the skills it needs for these fast-growing sectors. The Commission is endeavouring to step up our capacity to monitor and anticipate current and emerging skills needs.

By the end of the year it will launch the EU Skills Panorama, an online platform providing up-to-date intelligence on the types of jobs and skills in demand and how they match supply at both EU and Member State level.

Employment and social crisis

The issue of resources for social investment is one we cannot and must not sidestep.

We are all aware that the European Union is going through a serious crisis — one that has lasted for five years now.

What started as a real estate crisis and banking crisis is now compounded by an economic crisis, a sovereign debt crisis, a monetary crisis — and a deep employment and social crisis too.

None of those different aspects has been entirely resolved. And if they are not resolved, will they not add up sometime to a political crisis and demand a political solution?

I believe the European Union is approaching a moment of truth: will it take a new step forward along the path to integration, or will it take a step backwards — towards protecting the narrow national interest?

Of course, a lot has been done. In the field of public debt and banking, there is clear movement towards stricter discipline and closer monitoring at EU level, at least within the euro area.

And there are signs that things could move institutionally too. In his State of the Union address, President Barroso called for movement towards a federal Europe. And the Future of Europe Group seems to echo the same thoughts.

To come back to my own area of responsibility, I note that as things stand today, there is a major gap between political statements and commitments on the social dimension of Europe and their translation into budgetary support.

Yet the social dimension of the European Union is clear. According to the Treaty, the aims of the Union include promoting economic, social and territorial cohesion, and solidarity among the Member States.

Under the Europe 2020 Strategy, the Union has set itself ambitious headline targets. Three out of five have a clear social dimension — those for employment, educational attainment and poverty reduction.

Those targets have been reconfirmed on various occasions, most recently by the June 2012 European Council.

The Compact for Growth and Jobs that was agreed there expresses the determination of the Heads of State or Government to stimulate smart, sustainable, inclusive, resource-efficient and job-creating growth under Europe 2020 and to make it a priority for the next financial perspectives.

The main EU budgetary instrument to help make these commitments a reality is the EU cohesion policy with in particular the regional development fund to support infrastructures and the European Social Fund to support human capital.

It is a paradox that at a time when investment needs are the highest, the cohesion policy is under strong pressure to shrink and our proposal to give the Social Fund a predictable and sufficiently robust funding finds little support. Another EU instrument to help the unemployed find a new job – the Globalisation Adjustment Fund – is also being opposed by a number of countries, including Germany. And this despite all the evidence that the fund has helped thousands of unemployed reintegrate the labour market, including in Germany.

With perhaps only a few weeks to go before a final deal on the next EU financial perspectives, the risk that EU investment in people could be significantly reduced has therefore become very real. This would be unique in the developed world and a huge mistake in my view.

With the current social and employment crisis and the long term demographic challenges, the European Union cannot afford to reduce its budget for employment, social inclusion or education!

Sacrifice the European Social Fund and the European Globalisation Adjustment Fund on the altar of fiscal consolidation would be very short-sighted. I therefore hope that in the run up to the decisive November European Council, the political leaders will realise what is at stake and take the right decisions.